At once questions of finance arose. Ancient China had taken her brave step in modern world affairs. She might now have to go to war. That would take money, and money would be needed to guard such a contingency—indeed, internally and externally China had need to put her financial house in order. Yuan Shih-kai's imperialism had left a burden of debt. The Republic required strengthening by a new system of national credit and by the building up of its natural resources. Now the public debt was relatively still small, the rate of taxation upon the hundreds of millions of citizens low. The situation was basically sound. The question had been asked since last summer: Would America supply China with an investment loan of a hundred millions, thus delivering her of lenders who were seeking to dominate her and to split her up into "spheres of influence"?
Minister Wellington Koo, who had journeyed to the United States in behalf of Yuan Shih-kai's imperial ambitions, now worked for the Republic there. I suggested at first that the firm of Lee, Higginson & Company, which still held its option, should complete its loan. This was not done. Then other capitalists were approached and in November, 1916, Doctor Koo arranged for a large loan with Mr. John J. Abbott, president of the Continental and Commercial Savings Bank of Chicago. Mr. Abbott, wishing to study the Chinese financial situation, arrived in Peking during April, 1917, bringing his lawyer. I got him acquainted with the Chinese ministers, and took him and Mr. Joy Morton, also of Chicago, to lunch with President Li and Dr. Chen Chin-tao and Hsu Un-yuen. The President said: "I will back all financial legislation which American experts may find necessary for the proper organization of China's credit."
Doctor Chen was arrested and put in prison through the plotting of his enemies, but Hsu Un-yuen remained, with his sound financial training. Finally Mr. Abbott proposed an ingenious scheme, with the wine and tobacco taxes as the basis—for every $1,000,000 of annual revenue there should be a loan of $5,000,000; if the taxes amounted to ten millions, they would serve as security for a loan of fifty millions. Mr. Abbott left behind him a plan for reorganizing these taxes, and a promise to take up at any time the question of loans on this basis, in addition to five millions lent the preceding November and an option for twenty-five millions more.
CHINA'S BOSSES COME TO PEKING
I have noted that Dr. Chen Chin-tao, Chinese Minister of Finance, was put in prison. Doctor Chen had administered Chinese finances strictly and well, in a most difficult period. For the military governors or Tuchuns, who were the real bosses of China's vast population, he was too honest and too strict. The Tuchuns looked upon the Minister of Finance as in duty bound to procure funds for them by hook or crook.
When the government banks were broken and had declared a moratorium, their large over-issues of notes were worth only one half their face value. Working with Doctor Chen was Hsu Un-yuen, managing director of the Bank of China. Mr. Hsu managed judiciously to bring the notes of his bank virtually to par. The Tuchuns, aided by the pro-Japanese clique, which formed part of the Premier's entourage, attacked both Hsu and Doctor Chen. For the latter the cabal laid a trap. It was made to appear that he gave support to a certain company in return for having his brother employed. So the cabal, using this pretext to satisfy their grievances, got him arrested and jailed, thus ending his negotiations with the Chicago bank of John J. Abbott. President Li was interested and distressed. When I asked Premier Tuan about Doctor Chen, he smilingly stated that he should have a chance to clear himself.
Meanwhile, the breach between the Premier and the President widened. To strengthen himself in his policy of favouring a declaration of war, the Premier called all the Tuchuns to Peking for a conference. Nine governors-general came, and all the other provinces sent delegates. General Tuan was successful with them, and by April 28th they had decided to support his war policy.